Hikes Over? Cool October CPI Report Lifts Stocks, Hammers Yields on Ideas that Rates Have Peaked

The October Consumer Price Index (CPI) report this morning showed flat headline growth month-over-month and the lightest yearly gain in core prices in two years. Stocks immediately lifted off after the data as investors dialed down chances of near-term rate hikes to practically zero.

5 min read
Photo by Adobe

Key Takeaways

  • Stocks leap, bonds yields plummet after milder-than-expected October Consumer Price Index

  • Home Depot kicks off big box earnings with a solid quarter, but guidance looks soft
  • Congress expected to begin voting today on measures to avert possible shutdown

(Tuesday market open) Fresh signs of progress in the fight against inflation gave stocks an early lift Tuesday and sent Treasury yields to sharp declines as investors grew optimistic that rate hikes could be over.

The headline October Consumer Price Index (CPI) was flat month-over-month, while core CPI, which strips out food and energy, rose 0.2%. Analysts had expected 0.1% for the headline figure and 0.3% for core.

On a year-over-year basis, core inflation of 4% was the lowest in more than two years, though it remains well above the Federal Reserve’s 2% target. Even so, the benchmark 10-year Treasury note yield quickly plunged 12 basis points to 4.5% after the data release, and major U.S. indexes jumped more than 1% in premarket trading.

“This was a very encouraging report and provides more evidence that inflation continues to trend lower,” says Collin Martin, a director of fixed income strategy at Schwab. “The lower-than-expected monthly increase in the core CPI is noteworthy following two months of 0.3%. The better-than-expected report supports our view that the Fed is likely done hiking rates for this cycle.”

Chances of a Fed rate hike next month, which had been around 10% in the futures market, fell to less than 1% after the data. The chance of a hike in January, which had been tracking near 15% to 20% recently, fell to 5%.

Energy shares were among the strongest performers Monday, helped by stronger crude oil futures. Health care and consumer staples also rose. Utilities led decliners.

Morning rush

  • The 10-year Treasury note yield (TNX) fell 12 basis points to 4.49%.
  • The U.S. Dollar Index ($DXY) dropped to 104.83.
  • Cboe Volatility Index® (VIX) futures hit a seven-week low of 13.99.
  • WTI Crude Oil (/CL) rose slightly to $78.63 per barrel.

Just in

CPI takeaways: Burrowing into this morning’s CPI data, for the core rate, the Bureau of Labor Statistics (BLS) noted that “indexes which increased in October include rent, owners’ equivalent rent, motor vehicle insurance, medical care, recreation, and personal care. The indexes for lodging away from home, used cars and trucks, communication, and airline fares were among those that decreased over the month.”

The flat month-over-month headline CPI reflected rising shelter prices offset by falling gasoline prices, the BLS said.

Four Fed speakers are scheduled today, and it could be interesting to see if they give their takes on the CPI data and what it might mean for the inflation outlook and interest rate strategy. Investors already build in several rate cuts next year.

What to watch

PPI up next: There’s no time to kick back after CPI. Tomorrow features the October Producer Price Index (PPI) and October Retail Sales just before the open. Here are analysts’ average PPI estimates, according to Trading Economics:

  •  October PPI monthly: 0.1%, versus 0.5% in September
  • October PPI annually: 1.9%, versus 2.2% in September
  • October core PPI monthly: 0.3%, versus 0.3% in September
  • October core PPI annually: 2.7%, versus 2.7% in September

The producer price index tracks wholesale prices and tends to not be as influential as CPI. It offers insight into what kind of inflation companies face when they buy raw materials—costs they might eventually pass along to customers.

For Retail Sales, analysts now see a 0.3% monthly decline after 0.7% growth in September, according to Trading Economics. Lower gas prices could keep the headline figure lower, so keep an eye on retail sales excluding gas and autos, which rose 0.6% in September and might be less influenced by commodity prices and the biggest-ticket items, cars. From a rate perspective, the market would likely prefer to see a modest pullback in consumer spending, meaning modest bad news could be seen as good news.

Capitol matters: Congress is back on center stage the next few days as lawmakers try to keep the lights on. A House vote is expected today on Speaker Mike Johnson’s proposed two-track path that would fund several agencies through January 19 and the rest through February 2, says Michael Townsend, managing director of legislative and regulatory affairs at Schwab. The package would avert a shutdown this week, but includes no controversial policy provisions or spending cuts, nor does it include any emergency funding for Israel, Ukraine, or border security.

“The temporary extension would likely set up Congress for a bitter showdown in early 2024 that could lead to an extended government shutdown at that time,” Townsend says, adding that lawmakers want this resolved, at least temporarily, before the Thanksgiving recess. “It might get done by Friday, but there may still be bumps along the way.”

Summitting: Tomorrow, President Biden’s meeting with Chinese President Xi Jinping in San Francisco could have possible trade implications. Reports that China might commit to buying planes from Boeing (BA) surfaced ahead of the meeting, and other trade-related headlines can’t be ruled out. China in the past has used these meetings to signal interest in buying U.S. goods. While relations remain frosty, several high-level meetings led up to tomorrow’s tête-à-tête and could imply progress.

In other China-related news, shares rose in most Asian markets overnight, partly aided by a Bloomberg report that China may push for new economic stimulus measures.

Stocks in spotlight

Home Depot (HD) hit the nail on the head, surpassing analysts’ expectations for earnings per share (EPS), matching Wall Street’s revenue forecasts and guiding for EPS in line with analysts’ thinking. The splinter was the company’s fiscal year revenue guidance, which missed consensus views. Still, shares rose slightly in premarket trading. “Similar to the second quarter, we saw continued customer engagement with smaller projects, and experienced pressure in certain big-ticket, discretionary categories,” the company said in a press release.

Target (TGT) unveils earnings first thing tomorrow after leaving investors disappointed with its previous quarterly results. Back in August, Target’s sales missed Wall Street’s estimates and the company cut its full-year forecast, saying consumers remained challenged by food and household inflation and concerns about resumed student loan payments. Shares are down sharply this year, diverging with a rally down the street at competitor Walmart (WMT). Online transactions and groceries helped drive Walmart’s results earlier this year, and it reports Thursday.

Besides Home Depot, Target, and Walmart, several other big retail names report this week, including TJX Companies (TJX) on Wednesday; and Gap (GPS), and Macy’s (M) on Thursday. Another key earnings report to watch is Cisco (CSCO) after the close Wednesday.

While quarterly numbers do matter, the tone of big-box earnings conference calls arguably means more, especially with Black Friday next week and the following Cyber Monday.

Eye on the Fed

Early today, futures trading pegged chances at 99% of the Federal Open Market Committee (FOMC) holding its benchmark funds rate steady following the December 12–13 meeting, according to the CME FedWatch Tool. Chances of rates staying on pause following the FOMC’s January 30–31 meeting are 95%.

Talking technicals: The technical situation remains in the bulls’ favor, says Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. On the SPX, key near-term support levels are 4,400 followed by 4,335 (the 50-day simple moving average, or SMA), with the next key near-term resistance levels at roughly 4,500 (where sellers showed up in late August and early September) and then 4,600.

CHART OF THE DAY: DOLLAR MARCHING IN PLACE. The U.S. dollar index ($DXY-candlesticks) made a sharp move higher two months ago to its 2023 high but couldn’t build on that. Now it’s losing grip on the 50-day simple moving average (blue line), while 105 (red line), which once marked resistance, now looks like possible support. Data source: ICE. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Thinking cap

Ideas to mull as you trade or invest

Margin call: It’s tempting to judge earnings season by the percentage of companies beating analysts’ estimates on earnings per share (EPS). So far, it’s 81% of S&P 500 companies with 92% of earnings season complete. But that leaves out a critical element, net profit margin, that can provide far more insight. In Q3, it’s 12.1% on a blended basis including results and anticipated results, according to research firm FactSet. If that’s where it ends up, it’ll be a sequential improvement from 11.6% in Q2 and a jump from the five-year average of 11.4%. A year ago, it was 11.9%. Consumer discretionary and energy companies led the margin gains, but seven of 11 S&P 500 sectors reported annual improvements. While it’s just one quarter, the improved margin is arguably excellent news implying many companies made productivity gains that can support future earnings growth. It’s also encouraging because it occurred even as many companies faced challenges on pricing, with revenue gains of 2.3% so far in Q3 well below the five-year average of 7.2%. Perhaps that means companies can move the earnings needle without relying as much on inflation to continue providing a tailwind.

Not easy being green: A year ago, many large companies warned investors that a strong dollar represented a significant headwind. There’s less talk of that now, but the dollar remains a source of concern, down just 7% from its late 2022 peaks. Recent falling Treasury yields didn’t extend to the currency market, where the dollar remains firm versus the euro and the yen. And it doesn’t appear likely that multinational companies, including many in the tech sector with massive overseas exposure, will get much relief soon. “We look for the dollar to remain firm on the relative strength of the U.S. economy compared to other major developed markets, especially Europe,” says Kathy Jones, Schwab’s chief fixed income strategist. “There’s a case to be made that the dollar is overvalued and has room to fall,” she adds, “but that likely won’t happen until the interest rate cycle shifts.” In other words, until the Fed begins trimming rates. She notes that the market still prices in about three rate cuts of 25 basis points each next year, “which we think is a reasonable expectation in light of slowing inflation.”


Fed plays 20 questions: If you thought last week was busy for Fed speakers, wait until you see this week’s schedule. The calendar includes 20 separate events where Fed policymakers are expected to give remarks. “The Fed will likely keep rates elevated through at least Q2 of 2024,” says Cooper Howard, a director of fixed income strategy at the Schwab Center for Financial Research. “We believe the bar for an additional rate hike this cycle is high, but they’ll want to keep their options open.”


Nov. 15: October Producer Price Index (PPI), October Retail Sales, November Empire State Manufacturing, and expected earnings from Target (TGT) and Cisco (CSCO).

Nov. 16: October Industrial Production and October Capacity Utilization, and expected earnings from Walmart (WMT), Macy’s (M), Applied Materials (AMAT), and Gap (GPS).

Nov. 17: October Housing Starts and Building Permits.

Nov. 20: October Leading Indicators and expected earnings from Zoom (ZM).

Nov. 21: Expected earnings from Nvidia (NVDA), Dick’s Sporting Goods (DKS), Lowe’s (LOW), Autodesk (ADSK), HP Inc. (HPQ), Medtronic (MDT), Kohl’s (KSS), and October Existing Home Sales.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

Charles Schwab & Co., Inc. (“Schwab”) and TD Ameritrade, Inc., members SIPC are separate but affiliated subsidiaries of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank.


Key Takeaways

  • Stocks leap, bonds yields plummet after milder-than-expected October Consumer Price Index

  • Home Depot kicks off big box earnings with a solid quarter, but guidance looks soft
  • Congress expected to begin voting today on measures to avert possible shutdown
Call Us

Do Not Sell or Share My Personal Information

Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.

Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

TD Ameritrade and all third parties mentioned are separate and unaffiliated companies, and are not responsible for each other’s policies or services.

Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold. 

All expressions of opinion are subject to change without notice in reaction to shifting market conditions.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

Charles Schwab & Co., Inc. (“Schwab”) and TD Ameritrade, Inc., members SIPC are separate but affiliated subsidiaries of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank.


Market volatility, volume, and system availability may delay account access and trade executions.

Past performance of a security or strategy does not guarantee future results or success.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.

TD Ameritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2023 Charles Schwab & Co. Inc. All rights reserved.

Scroll to Top